Broadway Ltd.purchased equipment on January 1,2014,for $800,000,estimating a five-year useful life and no residual value.In 2014 and 2015,Broadway depreciated the asset using the straight-line method.In 2016,Broadway changed to sum-of-years'-digits depreciation for this equipment.What depreciation would Broadway record for the year 2016 on this equipment?

Question

Quizplus · Accepted Answer

The straight-line depreciation for 2014 and 2015 is $160,000 per year ($800,000/5 years). By the end of 2015, $320,000 is depreciated, leaving a book value of $480,000. For sum-of-years'-digits in 2016, the remaining life is 3 years, and the sum of the years is 3+2+1=6. The depreciation for 2016 is (3/6) * $480,000 = $240,000.